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Title: Final Term Project

Company Name: Infosys Limited


Subject: Financial Accounting For Managers
Batch: 2014-16 Section: F
Submitted By: Vaibhav Gupta
Intruduction
Infosys Limited (NASDAQ: INFY) was started in 1981 by seven people with $250.
Today, it are a global leader in the 'next generation' of IT and consulting with revenues of
$6.35 billion (LTM Q1FY12). Infosys defines designs and delivers technologyenabled
business solutions that help Global 2000 companies win in a Flat World. Infosys also
provides a complete range of services by leveraging their domain and business expertise
and strategic alliances with leading technology providers.
Infosys' offerings span business and technology consulting, application services, systems
integration, product engineering, custom software development, maintenance, re
engineering, independent testing and validation services, IT infrastructure services and
business process outsourcing. Infosys pioneered the Global Delivery Model (GDM),
which emerged as a disruptive force in the industry leading to the rise of offshore
outsourcing. The GDM is based on the principle of taking work to the location where the
best talent is available, where it makes the best economic sense, with the least amount of
acceptable risk.
Infosys takes pride in building strategic longterm client relationships. Over 97% of their
revenues come from existing customers. Infosys has global presence through its 50
offices and development centers spread across India, China, Australia, the Czech
Republic, Poland, the UK, Canada and Japan. Infosys and its subsidiaries have 133,560
employees as on June 30, 2011. Infosyss Finacle is Universal banking solution that
caters to core banking, ebanking, Islamic banking, treasury, wealth management and
CRM requirements of retail, corporate and global banks. It is used by over 106 banks
across 61countries,namely UK US, China, Taiwan, Hong Kong, India, Zimbabwe, Saudi
Arabia, Maldives, Nepal, etc. In February 2012, Bharti Airtel choose the company as its
partner for Airtel Money, mobile wallet service by a mobile operator. Under this
partnership, Infosys Wallet Edge, the mobile commerce platform will enable the
ubiquitous mobile wallet service to support cashless payments and settlements needs of
diverse customer segments.
Software Engineering & Technology Labs (SETLabs) is the research arm of Infosys. it
is at the forefront of anticipating and shaping the evolution of technology and its impact
on business. Infosys SETLabs undertakes targeted R&D to address your business
problems. Our researchers are engaged in cuttingedge research to share insights with

clients. It focus on research areas such as Malleable Architecture, Pervasive Access,


Flexible Processes and Personalized Information. Further the company is headquartered
in Bengaluru, Karnataka. It is the third-largest India-based IT services company by 2014
revenues, and the fifth largest employer of H-1B visa professionals in the United States in
FY 2013. On 31 March 2014, its market capitalisation was 188,510 crores ($31.11
billion), making it India's fifth largest publicly traded company.
Infosys provides enterprises with strategic insights on what lies ahead. They help
enterprises transform and thrive in a changing world through strategic consulting and the
co-creation of breakthrough solutions, including those in mobility, sustainability, big data,
and cloud computing.
At Infosys, its more than just innovation that has won the confidence of stakeholders.
They believe their responsibilities also extend beyond the boundaries of business. The
Infosys Foundation provides assistance to some of the most depressed sectors of the
communities in which it work. The Infosys Science Foundation awards the Infosys Prize
to some of the most important research of our times in the sciences and the humanities.
OBJECTIVE OF THE STUDY
In this report we will try to discuss the main revenue generating activities and major
growth drivers of the company, Infosys Limited. This report also includes analysis of
financial statements of the Infosys Limited for two financial years namely 2012-13,
2013-14. The analysis is made on
1. Balance sheet
2. Profit and loss account
3. Cash flow statement
Ratio Analysis: The term accounting ratio is used to describe significant relationships
which exist between figure shown a Balance Sheet and Profit and Loss Account. The
accounting ratios indicate a quantitative relationship which is used for decision
making and analysis. The ratios provide a basis for inter firm and intra firm
comparison. The ratios will be effective only when they are compared with ratios of base
period or with standards or with industry average. Ratios analysis is a very powerful
analytical tool useful for measuring performance of an organization. Ratio analysis
allow interested parties like shareholders , investors, creditors, Government and
analysts to make an evaluation of certain aspects of a firm performances.
The ratios that are computed for different users are compared with the past year(s)
data, nearest competitor, industry leader and industry averages. The users of this ratio
analysis are shareholders/owners, managers, creditors/lenders, potential investors and
analysts. It basically depicts the financial health of the company and also helpful for
managers, lenders, stakeholders etc. in decision making process.

QUESTIONS AND ANSWERS


Q. What are the main Revenue Generating Activities (Main Business) of the
company?
Ans. The main revenue generating activities (Main Business) of the company is the
income from the software service provided and the software products they make & sell
to the other companies which has increased from 40352 crore to 50133 crore an increase
of 24.24% in total operating income as per the directors report. In the software service
provider company is a market leader in India and it is the third largest company in this
term.

Q. What are the major Growth Drivers for the products of the Company?
Ans. Infosys Technologies the provider of business IT services is one of the leading Giant
in their segment. The major growth driver for the companies is the application
development and service providing in which they focus on the client value &
accelerating innovation. Over a 25-year period, the company has successfully
completed more than 20,000 projects with a 99.998% error-free record. Over 93% of the
projects were delivered on time and on budget, far above the industry average of 30%.
Such high customer satisfaction rates have resulted in 95% of clients coming back to
Infosys for further projects. They use own internal learning, as well as experience in the
business and technology of education to give clients differentiated solutions and services
which help clients mitigate the risks of a changing learning environment. Apart from this
the integrity, transparency and fairness in the overall work leads to the growth and
excellence in the respective field. Resource efficiency has also helped them to achieve
far more their competitors. The Global Delivery Model helps release resources and
funding from existing operations so that the clients can redeploy them in core strategic
areas.
Q. What are the areas which are being covered by the Company in its Accounting
Policies? Specify the Accounting Policy being followed for Depreciation, Inventory
Valuation and Basis for Preparation of Accounts.

Ans. The areas that are covered by the company in its accounting policies are as follows
(a) Basis of preparation of Financial Statements
(b) Use of estimates
(c) Revenue recognition
(d) Provisions and Contingent Liabilities
(e) Post-sales client support and warranties
(f) Onerous contracts
(g) Tangible assets, intangible assets and capital work-in-progress
(h) Depreciation and amortization
(i) Impairment
(j) Retirement benefits to employees
(k) Foreign currency transactions
(m) Forward and options contracts in foreign currencies
(n) Income taxes
(o) Earnings per share
(p) Investments
(q) Cash and cash equivalents
(r) Cash Flow Statement
(s) Leases
Accounting Convention: The financial statements are prepared under the historical cost
convention, on an accrual basis and in accordance with the generally accepted accounting
principles in India, the applicable mandatory Accounting Standards as notified by the
Companies (Accounting Standard) Rules, 2006 and the relevant provisions of the
Companies Act, 1956 of India.
Depreciation: Depreciation on fixed assets is provided on the straight-line method over
the useful lives of assets estimated by the Management. Depreciation for assets purchased
/ sold during a period is proportionately charged. Individual low cost assets (acquired for
Rs.5,000/- or less) are depreciated over a period of one year from the date of acquisition.
Intangible assets are amortized over their respective individual estimated useful lives on a
straight-line basis, commencing from the date the asset is available to the Company for
its use. The Management estimates the useful lives for the other fixed
assets as follows :
Buildings
15 years
Plant & Machinery
5 years
Office Equipment
5 years
Computer Equipment
2-5 years
Furniture and Fixtures
5 years
Vehicles
5 years
Depreciation and amortization methods, useful lives and residual values are reviewed at
each reporting date.
Inventory Valuation: As the company is a business IT services it does not have any kind
of inventory.

Q. What are the major expense heads for the company during period of study?
Show your findings on year wise basis.
Ans.
In Rs Crore
Expense Heads
Year
2014
2013
Employee Benefit Expense
28331
22565
Deferred
consideration
228
85
pertaining to acquisition
Cost
of
technical
1951
1459
subcontractors
Travel expenses
Cost of software package
and others
Communication expenses
Professional charges
Depreciation
and
amortization expense
Other expenses
Total Expense

1697
982

1509
777

440
504
1317

361
506
1099

2119
38069

1557
29918

General and administration expenses were 6.6% and 6.5% of the revenues during the
year 2014 and year 2013, respectively. The total increase in the expense is 27.24%.
On a standalone basis, our research and development expenses for fiscal years 2014 and
2013 were Rs. 873 crore and Rs. 907 crore respectively.
On a consolidated basis, software development expenses were 61.4% of revenues,
compared to 59.9% during the previous year. Employee costs relate to salaries paid to
employees in India and overseas and include staff welfare expenses. The increase in
salaries and bonus is primarily due to compensation increases given to employees during
the last 12 months.
The cost of technical sub-contractors includes 1951 crore towards purchase of services
from subsidiaries for the year ended March 31, 2014, as against 1459 crore in the
previous year. The amount was utilized towards availing of the services of external
consultants to augment skill-sets required in large projects.
Overseas travel expenses include visa charges of 290 crore (0.7% of revenues) for the
year, compared to 308 crore (0.8% of revenues) in the previous year. On a consolidated
basis, overseas travel expenses for software development constituted approximately 2.7%
and 2.9% respectively of total revenue for the years ended March 31, 2014 and March 31,
2013.
Cost of software packages primarily represents the cost of software packages and tools
procured for our internal use. These packages and tools enhance the quality of our
services and also meet the needs of software development. On a consolidated basis, the
cost of software packages was 1.5% of the revenues for each of the years ending

March 31, 2014 and March 31, 2013.Third party items bought for service delivery to
clients include software and hardware procured from third parties for resale to clients.
Company use high-end communication tools in order to establish real-time connections
with our clients. On a consolidated basis, the communication expenses represent
approximately 0.3% of revenues for each of the years ending March 31, 2014 and
March 31, 2013 respectively.
Deferred consideration cost represents compensation payable to selling shareholders of
Lodestone on the third anniversary of the acquisition date and is contingent upon their
continued employment for a period of three years and is recognized proportionately. The
increase in deferred consideration is on account of including the full year impact during
fiscal year 2014 as compared to five months' impact in fiscal year 2013.
On a standalone basis, other expenses primarily represent computer maintenance,
consumables and rent and approximate to 0.5% of revenues during the year (0.4% in the
previous year).
Selling and marketing expenses primarily consist of employee costs. All other expenses
excluding the employee costs were 0.9% of revenues during the year as compared to
1.1% in the previous year.
Q. Comment on the cash flows from Operating Activities, Financing Activities and
Investing Activities. During the period of study, whether these cash flows have
improved or otherwise.
Ans. Cash flows are reported using the indirect method, whereby profit before tax is
adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of
past or future operating cash receipts or payments and item of income or expenses
associated with investing or financing cash flows. The cash flows from operating,
Investing and financing activities of the Company are segregated.
In the financial year of 2013-2014, for Infosys Limited, the cash flows from Operating
activities, Financing activities and investing activities can help us to decipher many facts
about the companys performance. We discuss the various aspects with respect to figures
from previous year as follows:

1) Cash Flow from Operating Activities: One of the most important contributing
factors in the cash flow from operating activities is the Dividend income and

Interest income which amounts to 2272 crore. The Dividend and interest income
has increased by 17.67% in the current financial year as compared to last year.
The deferred purchase price is also a heavy amount of 228, which results in a high
cash outflow. To balance its value, the Cash Generated from Operations is 9148
which is a high cash inflow. It has increased by 31.78% in the current financial
year as compared to last year. A major contributing part of the cash flow is trade
payables and the corresponding amount is 971 crore.
2) Cash Flow from Investing Activities: The purchase of fixed assets is a key
contributor in cash flow from Investing Activities. In the financial year of 20122013 it was (2907) crore and in the financial year of 2013-2014, it is (2307).
3) Cash Flow from Financing Activities: The Financing activities of Infosys
Limited led to a lot of inflow and outflow of cash. Some factors were loans given
to the subsidiary. The amounts were (33) and (184) for the year 2013-2014 and
2012-2013 respectively. The dividends paid also increased slightly from (3144) to
(3136) for the year 2013-2014 and 2012-2013 respectively.
Q. Read the MDA. List the major issues covered in MDA.
Ans.
Overview: Infosys Limited (Infosys or the Company) along with its controlled trusts
is a leading global services company. The Infosys group of companies (the Group)
provides business consulting, technology, engineering and outsourcing services.
In addition, the Group offers software products and platforms.
Increasing trend towards offshore technology services: Corporations are increasingly
turning to offshore service providers to meet their need for higher quality and costcompetitive technology solutions. As a result, offshore service providers have become
critical to the operations of many enterprises and these service providers continue to grow
in recognition and sophistication.
The India advantage: India is widely recognized as the premier destination for offshore
technology services. According to the NASSCOM Performance Review 2013, IT-BPM
exports (IT services and Business Process Management) from India are estimated to grow
in fiscal 2014 by 12-14%, to US $85 87 billion. There are several key factors
contributing to the growth of IT and IT-enabled services (ITES) in India and by Indian
companies.
Evolution of technology outsourcing: The nature of technology outsourcing is
changing. Historically, enterprises either outsourced their technology requirements
entirely, or on a standalone, project-by-project basis. In an environment of rapid
technological change, globalization and regulatory changes, the complete outsourcing
model is often perceived to limit a companys operational flexibility. Similarly, projectby-project outsourcing is also perceived to result in increased operational risk and

coordination costs and as failing to leverage technology service providers' full range of
capabilities.
Global Delivery Model: Global Delivery Model enables Infosys to derive maximum
benefit from:
large pool of highly-skilled technology professionals
24-hour execution capabilities across multiple time zones
The ability to accelerate delivery times of large projects by simultaneously processing
project components
The cost competitiveness across geographic regions
The built-in redundancy to ensure uninterrupted services, and
A knowledge management system that enables us to reuse solutions where appropriate.
Sources of funds
Share capital: At present, they have only one class of shares equity shares of par value
Rs. 5/-each. Its authorized share capital is Rs. 300 crore, divided into 60 crore equity
shares of Rs. 5/- each. The issued, subscribed and paid up capital stood at Rs. 287 crore
as at March 31, 2013 (same as the previous year).
Reserves and surplus: The balance as at March 31, 2013 amounted to Rs. 54 crore,
same as the previous year. The balance as at March 31, 2013 amounted to Rs. 54 crore,
same as the previous year. The balance retained in the Statement of Profit and Loss as at
March 31, 2013 is Rs.25,383 crore, after providing the interim and final dividend for the
year of Rs. 862 crore and Rs. 1,550 crore, respectively; and dividend tax of Rs. 403 crore
thereon. The total shareholder funds increased to Rs. 36,059 crore as at March 31, 2013
from Rs.29, 757 crore as at March 31, 2012.
Application of funds
Capital expenditure: Infosys incurred a capital expenditure of Rs. 1,847 crore (Rs.
1,296 crore in the previous year) comprising additions to gross block of Rs. 1,422 crore
for the year ended March 31, 2013. The entire capital expenditure was funded out of
internal accruals.
Additions to gross block: During the year, Infosys capitalized Rs. 1,422 crore to its
gross block comprising Rs. 640crore for investment in computer equipment, Rs. 30 crore
on Intellectual Property rights, Rs. 1 crore on vehicles and the balance of Rs. 751 crore
on infrastructure investments. It invested Rs. 145 crore to acquire 119.35 acres of land in
Bangalore, Mysore, Thiruvananthapuram and Hubli.
Investments
Infosys BPO Limited: It established Infosys BPO Limited as a majority-owned and
controlled subsidiary on April 3, 2002, to provide BPM services. Infosys BPO seeks to

leverage the benefits of service delivery globalization, process redesign and technology to
drive efficiency and cost effectiveness in customer business processes.
Deferred tax assets / liabilities: Infosys recorded deferred tax assets of Rs. 640 crore as
at March 31, 2013 (Rs. 459 crore as at March 31, 2012) and deferred tax liability of Rs.
318 crore as at March 31, 2013 (Rs.270 crore as at March 31, 2012). Deferred tax assets
primarily comprises of deferred taxes on fixed assets, unveiled leave , trade receivables,
and other provisions which are not tax deductible in the current year.
Recruitment: Infosys have built our global talent pool by recruiting new students from
Premier universities, colleges and institutes in India and through need-based hiring of
project leaders and middle managers. It has typically recruit students in India who have
consistently shown high levels of achievement.
Training and development: Competency development of its employees continues to be
a key area of strategic focus. It launched new programs to align with the needs of the
Infosys 3.0 strategy. In keeping with the changes in the use of technology in education,
they have enhanced technology-led training efforts in multiple areas.
Compensation: Infosys technology professionals receive competitive salaries and
benefits. They have a performance-linked compensation program that links compensation
to individual performance, as well as the Company's performance.

RATIO ANALYSIS
FINANCIAL RATIOS OF Infosys Limited OF THE YEAR 2014 AND 2013.
Ratios:
Return on Investment Ratios:
2014
2013
Return on Invested Capital
24.01
25.16
Return on Net worth
24.22
25.28
Activity Turnover Ratios:
Total Asset Turnover Ratio
.84
.85
Invested Capital Turnover Ratio
1.04
1.01
Inventory Turnover Ratio
0
0
Working Capital Turnover Ratio
1.53
1.41
Average Collection Period
60.39
63.10
Liquidity Ratios:
Current Ratio
3.82
4.82
Acid Test Ratio
3.81
4.81
Solvency Ratios:
Debt Equity Ratio
0
0
Debt to Total Invested Capital
0
0

Ratio
Interest Coverage Ratio
Capital Market Ratios:
Earnings Per Share
Cash Realization
Dividend Payout Ratio
Price Earnings Ratio
Profitability Ratios:
PBDITA Ratio
Operating Profit Ratio
Net Profit Ratio

178.40
.90
20.93(3rd Sept)

157.30
.76

34.06
31.58
23

35.99
33.39
24.8

Return on Investment ratios:


Return on Invested Capital: Useful for those shareholders, Bankers and Financial
Institutions who have provided the funds to the organization for a longer period (more
than 5 years).
ROIC for the year 2013-14 is 24.01% and for the year 2012-13 is 25.16%.
ROIC for the year 2012-13 has decreased compared to the previous financial year
indicating that the management of the company was not able to utilize its investments to
turn them into profitable business. So it gives a bad signal to the Shareholders, Bankers
and Financial Institutions who may hesitate to provide funds to the firm in the future.
Return on Net Worth: Useful for present and potential shareholders and also for the
management of the organization as an important indicator of Wealth Creation for
shareholder.
RONW for the year 2013-14 is 24.22% and for the year 2012-13 is 25.28
The company failed to generate the amount of return from its shareholders in
2013-14 as compared to 2012-13. Thus degrading the company in the eyes of the
Shareholders and they refrain from investing in the companys shares.
Activity/Turnover ratios:
Total Asset Turnover Ratio: Useful for managers. Indicates how much sales are being
generated on Total Assets of Business or how effectively total assets have been put to use
by the organization. The other variant of this ratio is Fixed Assets Turnover Ratio.
TATR for the year 2013-14 is 0.84 and for the year 2012-13 is 0.85
The company has not been able to generate adequate sales with respect to the
assets it has employed in the year 2013-14 when compared with the year 2012-13. The
management must act to improve the efficiency of the workforce and thereby improve the
current situation.
Invested Capital Turnover Ratio: Useful for Long Term Fund Providers. Indicates the
level of sales generated by using Long term Funds.
ICTR for the year 2012-13 is 1.04 and for the year 2012-13 is 1.01
The value of ICTR was increased in 2013-14 in comparison to the 2012-13. This
sends a positive signal to the Shareholders, Bankers and Financial Institutions which may
like to provide funds to the firm for a long term in the future.

Working Capital Turnover Ratio: Useful for Share capital providers. Indicates how
much sales is being generated by using shareholders funds.
WCTR for the year 2013-14 is 1.53 and for the year 2012-13 is 1.41
Average Collection Period: Useful for Managers and Working Capital Funds providers.
It indicates the period; company takes to collect money from its debtors.
ACP for the year 2013-14 is 60.39 days and for the year 2012-13 is 63.10. The average
collection period for the firm has decreased in the year 2013-14 when compared to the
year 2012-13. This shows that it takes less time for the firm to convert its receivables into
cash which is a favorable indication.
Liquidity Ratios:
Current Ratio: It is a liquidity ratio that measures a company's ability to pay short-term
obligations.
CR for the year 2013-14 is 3.82 and for the year 2012-13 is 4.82
Current ratio for the company has been decreased in the year 2013-14. This is a
poor indication as it suggests that the company has low liquidity and will not be able to
meet emergencies as it could in the previous year. The margin of safety in terms of
liquidity is low.
Acid Test Ratio: It is an indicator of a company's short-term liquidity. The acid test
ratio measures a company's ability to meet its short-term obligations with its most liquid
assets. The higher the quick ratio is the better the position of the company.
ATR for the year 2013-14 is 3.81 and for the year 2012-13 is 4.81
The acid test ratio of the company in the year 2013-14 has been decreased. Here
again the margin of safety in terms of liquidity is low.
Capital Market ratio:
Earnings Per Share: The portion of a company's profit allocated to each outstanding
share of common stock. Earnings per share serve as an indicator of a company's
profitability.
It has increased from 178.40 in 2013-14 to 157.30 in 2012-13. This is a good sign for the
company.
Cash Realization: This ratio indicates how close Profit after Tax is of being realized in
cash.
CR for the year 2013-14 is .90 and for the year 2012-13 is .76
The cash realization ratio for the year 2013-14 in comparison with the previous
year has been increased. This indicates that the quality of earning in the year 2013-14 has
been increased.
Profitability Ratios:
Gross Profit Ratio: Gross profit ratio is the ratio of gross profit to net sales expressed as
a percentage. It expresses the relationship between gross profit and sales.
GPR for the year 2013-14 is 31.58 and for the year 2012-13 is 35.99.

The gross profit ratio for the year 2013-14 has been decreased in comparison with
the previous year. That means that the company has decreased its profits with respect to
sales.
Operating Profit Ratio: This ratio helps in checking the ability of the management in
running the business.
OPR for the year 2013-14 is 31.58 and for the year 2012-13 is 33.39.
The operating profit ratio has also been decreased in 2013-14 when compared to 2012-13.
Net Profit Ratio: It is a measure of profitability. It is calculated by finding the net
profit as a percentage of the revenue.
NPR for the year 2013-14 is 23 and for the year 2012-13 is 24.79.
The net profit ratio of the company has been decreased in the year 2013-14 when
compared to the year 2012-13.

RATIO ANALYSIS GRAPHS

REFERENCES
http://www.infosys.com/
http://en.wikipedia.org/wiki/Infosys
http://www.sharesinv.com/articles/2011/05/24/importance-of-cash-flow-analysis-3/
http://www.cliffsnotes.com/more-subjects/accounting/accounting-principles-ii/financialstatement-analysis/ratio-analysis
http://www.myaccountingcourse.com/financial-ratios/debt-service-coverage-ratio
http://www.indiainfoline.com/markets/company/fundamentals/managementdiscussions/infosys-ltd/2806